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Amazon, Walmart Face Tough Rules as India Aids Small Traders

India tightened rules for foreign investment in e-commerce companies to check predatory pricing and deep discounts that threatened the domestic retail industry.

E-commerce companies like Inc and Walmart Inc.’s Flipkart, which act as a facilitator between the buyer and seller by providing an online market place, must treat all vendors equally by providing the same terms, the trade ministry said in a circular Wednesday. Cash back provided to buyers shall be fair and the company will not influence the price of goods or services. The new rules will be effective Feb. 1.

The move against online retail will help Prime Minister Narendra Modi’s Bharatiya Janata Party win support of local traders—a key voting bloc for the party that suffered defeats in provincial elections this month. The south Asian nation is key to global retailers as it has a billion plus population but only a few million of them own smartphones, offering them the opportunity of exponential growth in online consumption.

The government barred e-commerce companies from forcing a seller to feature products exclusively on their platforms. A certificate confirming the compliance of all rules and an auditor’s note will have to be submitted to the Reserve Bank of India by Sept. 30 every year for the preceding financial year.

“It’s a big achievement after a long struggle,” Praveen Khandelwal, secretary general of Confederation of All India Traders, said in a statement. “If it is implemented in proper spirit, malpractices and predatory pricing policy and deep discounting of e-commerce players will be a matter of past.”

Amazon and Flipkart will make presentations before India’s finance and commerce ministries to contest the new rules, local news channel BTVI said in a Twitter post, citing unidentified people.

Amazon is evaluating the rules, a spokesperson for Amazon India said in an email. Flipkart didn’t immediately respond to a message seeking comments.

Some of the key highlights of the policy are:

E-commerce entity providing a marketplace will not exercise ownership or control over the inventory Inventory of a vendor will be deemed to be controlled by e-commerce marketplace entity if more than 25 percent of purchases of such vendor are from the marketplace entity An entity having equity participation by e-commerce marketplace or its group companies will not be permitted to sell its products on the platform run by such marketplace entity.

Reporting by by Nupur Acharya and Shruti Srivastava.